In the midst of declining earnings, Microsoft announced today that it will be laying off up to 5,000 people over the next 18 months, or about five percent of its total workforce. Of that amount, 1,400 are losing their jobs today. Microsoft also says that it will continue to hire and that the net headcount reduction over the next 18 months should amount to between 2,000 and 3,000. The layoffs, along with salary freezes, the elimination of contract workers, lower marketing spending, and other measures are expected to reduce operating expenditures by $1.5 billion this fiscal year.
The company reported revenues of $16.6 billion in the quarter, a two percent increase but $900 million lower than it had expected. The stock is down 7 percent on the news. Also, in an admission of the great economic uncertainty facing all companies, Microsoft is no longer giving guidance for future earnings:
Due to the volatility of market conditions going forward, Microsoft is no longer able to offer quantitative revenue and EPS guidance for the balance of this fiscal year.
Full press release:
Microsoft Corp. today announced revenue of $16.63 billion for the second quarter ended Dec. 31, 2008, a 2% increase over the same period of the prior year. Operating income, net income and diluted earnings per share for the quarter were $5.94 billion, $4.17 billion and $0.47, declines of 8%, 11% and 6%, respectively, compared with the prior year.
Client revenue declined 8% as a result of PC market weakness and a continued shift to lower priced netbooks. However, strong annuity licensing drove Server & Tools revenue growth of 15%. Entertainment and Devices revenue grew 3% driven by strong holiday demand for Xbox 360 consoles with a record 6 million units sold in the quarter.
During the quarter, Microsoft showcased significant new product innovations by debuting Windows 7, Windows Azure, Office Web applications, Windows Server 2008 R2 and Office Communications Server 2007 R2. Microsoft also announced general availability of Silverlight 2, Exchange Online, SharePoint Online, Windows Small Business Server 2008, Windows Essential Business Server 2008 and a new release of Microsoft Dynamics NAV.
“While we are not immune to the effects of the economy, I am confident in the strength of our product portfolio and soundness of our approach,” said Steve Ballmer, chief executive officer at Microsoft. “We will continue to manage expenses and invest in long-term opportunities to deliver value to customers and shareholders, and we will emerge an even stronger industry leader than we are today.”
In light of the further deterioration of global economic conditions, Microsoft announced additional steps to manage costs, including the reduction of headcount-related expenses, vendors and contingent staff, facilities, capital expenditures and marketing. As part of this plan, Microsoft will eliminate up to 5,000 jobs in R&D, marketing, sales, finance, legal, HR, and IT over the next 18 months, including 1,400 jobs today. These initiatives will reduce the company’s annual operating expense run rate by approximately $1.5 billion and reduce fiscal year 2009 capital expenditures by $700 million.
Business Outlook
“Economic activity and IT spend slowed beyond our expectations in the quarter, and we acted quickly to reduce our cost structure and mitigate its impact,” said Chris Liddell, chief financial officer at Microsoft. “We are planning for economic uncertainty to continue through the remainder of the fiscal year, almost certainly leading to lower revenue and earnings for the second half relative to the previous year. In this environment, we will focus on outperforming our competitors and addressing our cost structure.”
Due to the volatility of market conditions going forward, Microsoft is no longer able to offer quantitative revenue and EPS guidance for the balance of this fiscal year. Microsoft offers operating expense guidance of approximately $27.4 billion for the full year ending June 30, 2009. This information supercedes the fiscal year 2009 guidance that Microsoft provided on Oct. 23, 2008. Management will discuss second-quarter results, and the company’s qualitative business outlook on a conference call and webcast at 8 a.m. PST (11 a.m. EST) today.
5,000 is a lot but still only 5%. I thought they shed naturally about 5% a year.
I agree, I thought they do a lot of layoffs all the time…. at least that what I had understood.
Also, agree with RalphF – many of those “layoffs” might indeed turn into nice packages or something like that (early retirement?)… not the kind of layoffs that I see with no severence, etc.
These are smart people and I’m sure many of them will move on and land well or start their own entrepreneurial dreams…
Given these comments by Mr. Ballmer,
“Today we announced second quarter revenue of $16.6 billion.
This number is an increase of just 2 percent compared with the second quarter of last year
and it is approximately $900 million below our earlier expectations.”
. . . consider . . . using a “guesstimate” of $ 175,000 annual average employee investment, that would equate to a cost savings per year (after 18mos and severance packages) of :
-2,000 jobs = $ 350M savings
-3,000 jobs = $ 525M
-4,000 jobs = $ 700M
-5,000 jobs = $ 875M
. . . take that last number, $875M, that equates to :
9,723,303 copies of VIsta Home Premium Upgrades
4,070,714 Xbox 360 60GB consoles
6,578,442 Zune 8GB
* at Amazon prices
Another perspective :
$875M is 0.13 % of the $700 BILLION TARP mistake / scandal
Isn’t this where the tech-sheep start calling for the CEO’s head? Oh yea… that is reserved for yahoo!
What no Taco truck whoring a company’s name for the grand occasion?
Bed made, time to lie in it.
JT – you are naive. This is nothing to do about MSFT and more to do with the screwed up economy we are in. If MSFT can’t make it, no one can.
Jason, you’re wrong. Microsoft is a dying giant being brought down by the swarm of other companies not afraid to innovate. They have far too many competitors to excel at any one thing, they’re miles behind in web presence and the lack of focus/identity is going to ruin them in a non OS-centric world.
Two points:
1) When even mighty Microsoft has to eliminate jobs, you know the economy is really screwed.
2) The wording in the release reads “5000 jobs eliminated” which does not necessary equate to 5000 layoffs. Open headcounts removed, attrition not replaced, resources re-allocated, and some layoffs to be sure, but not necessarily 5000 human beings actually kicked to the curb.
RalphF, well said
When MS cuts this many at once, it will give lesser big companies the license to follow. Expect more cuts across the high end corporate tech sector.
Why Sad day? I think it is a good day for Microsoft. Now they have an opportunity to redefine what they offer and what they stand for. Otherwise it would indeed be a ‘Sad day’.
Neeraj,
I’m sure the 3-5000 people that are soon to be unemployed in a weak economy will take solace from your compassion!!!
Idiot!
-Jamie
Jamie:
I am a software engineer myself and I have been laid off before. So I do understand the pain of the people who will soon be jobless.
However we cannot and should not prevent companies from shedding extra weight or if they want to move to a new direction and they need new skill sets. That’s why I said this is an opportunity for Microsoft to redefine itself otherwise it will be an opportunity wasted.
Agree with Neeraj, although a point to mention: there are smart people working at Microsoft who are on H-1B’s and are already disadvantaged and limited in their choices because of the cap on hiring H-1B’s is 15% /company. If those people get laid off and no one else is hiring what will happen to them.
Very simple. Those jobs would be shipped overseas. And, more people will complain about outsourcing.
If they stay here, the jobs stay here too. Anyways, they contribute significant amount in taxes too.
Yes, I’m sure they’ll re-define themselves by hiring more…H1bs and off-shore workers…a bold new direction of cheap, under-par labor!
Must be tough when you’re only making that kinda money!
Not good for the 1,400 people being sent home today that they’re still hiring…
I hope I can find a job just after graduating.
This prove that no matter where do you work and what you work, ‘job’ is never secure. Do something your own. Be the boss and noone will fire you.
I’m not so sure, because even as your own “boss”, you have to report to someone. Let’s say you funded the company on your own and somehow built a great company on your fundamentals, like Jobs did with NeXT. The issue is that you still have to report to someone – your customers.
This happens in any kind of business whether you’re doing dry cleaning or or writing software.
At least you are not reporting to a single totally off the wall panicked pointy haired boss trying to cover his back side with your skin.
One to many is far better than one to one. Lose one of the many and you might be hurting but you are not dead. Work a bit harder and a bit better and you have a chance of replacing that one many times over.
Get a job with the federal government. You will never get fired.
No job is ever secure unless you continue to give out something that is useful. As an employee if your usefulness ends, you are laid off. As a business if you fail to give out something useful, your customers simply stop coming to you. Either way you are screwed. ‘Being your own boss’ doesn’t give you the immunity you have deluded yourself into believing.
well, the news coming from this industry are not very good… but as they say what comes up must go down eventually.
*yawn*
*goes back to making money*
If only they’d fire all of their marketting teams- frankly MS has never marketed it’s brilliant products well enough.
That said, this is sad, it’s a shame that it had to happen but hopefully this will be cause for MS to reevaluate a lot of what it does.
You mean the agency they recently inked to a 300 million dollar contract?
http://www.cpbgroup.com/
5, 000 people going to be laid off is a big number. just imagine 5, 000 people unemployed. i just hope they would find a new job as soon as possible. it is really hard to accept but let’s just face it and make some actions.
Exclusive coverage from Ballmer’s Press Conference:
“In a press conference announcing the cuts, Microsoft CEO Steve ‘Monkey Boy’ Ballmer hung from a tyre swing as he told journalists, “basically, not enough people are buying Vista. I mean, I know it’s a pointless, buggy, insecure, resource-intensive pile of expensive eye-candy, but in the absence of any innovation since Windows 3.1 we have to compete with Apple somehow”.
Full coverage here.
D
Why don’t they just lower salary 5% so few people be laid off? Per salarylist.com many guys there earn over $120K, and 5% cut won’t hurt that much, compared to people losing jobs
It will hurt when the good people that deserve that money feel screwed and start to poison the well. Most people are not team players when it comes to their paycheck.
They actually did a study on that and found that people would rather face layoffs then take a company wide salary cut. Got to find that link…
anyone know what the net profit was? i’m too lazy to look it up.
why the hell are companies that are turning huge profits still laying off people? you want consumers to buy stuff? don’t fire anyone.
There is no doubt that this economy sucks but Microsoft’s earnings are a nice bookend to Apple’s earnings, especially considering how Apple has done all of the things that Microsoft was once noted for – the platform play spread across apps, devices, tools and services – and largely outflanked them.
More to the point, it’s somewhat akin to entropy at work.
Simply put, this is a company with incredible amounts of legacy to support and the weight of that is sinking them, IMHO.
I blogged on this point in a post comparing their gravitational pull to the collapse of communism:
Microsoft and the Collapse of Communism
http://thenetwo...soft_and_t.html
Check it out if interested.
Mark
I think technologies like windows surface, and windows 7 will bring back them to the market once they get released fully..
Greed continues to permeate Corporate America. You make nearly $6 billion for the quarter and you decide to layoff 1400 people today. Intel did the same a few years ago amid a huge quarterly profit. What kind of asinine culture do we have that puts obscene profits ahead of people. No wonder the economy is as screwed up as it is. Everyone in it for themselves.
That’s why I’ll just stick to online marketing, cause I’ll be damned if I get laid off or fired from another job!
@Steve Bomber, microsoft isn’t going anywhere. operating systems will be around for years and years to come. not everything can be done via cloud computing, which i am guessing is what you are referring to when you say ‘non OS-centric world’. in addition, windows comprises of only a fraction of their revenue. if you think that microsoft hasn’t already begun developing the technology for cloud computing, you are naive. you may not like the evil empire, but that doesn’t mean they are going anywhere.